Now more than ever, it pays to understand the 10-year U.S. Treasury yield, what it means to the global financial system and how its path will shape the second administration of President Donald J. Trump.
The 10-year Treasury note yield is what the U.S. government pays to borrow money for a decade. It has long been recognized as a benchmark for the global financial system.
It's the starting point for corporate bond pricing, and it's the basis for the 30-year mortgage and other critical market-driven consumer borrowing costs.
Backed by the full faith and credit of the United States government, the 10-year U.S. Treasury note yield also represents a risk-free rate of return.
When the yield on the 10-year starts to creep toward, say, 5%, investors start to think hard about how nice it would be not to think so hard about generating a reasonable rate of return.
The 10-year Treasury yield also aggregates things like economic growth and inflation. That makes it a pretty good full-service proxy.
There are many ways to try to track this particular president, including traditional public opinion polls, sentiment indicators, economic data and equity indexes – and that's in addition to multiple actual market prices.
But the old methods are sometimes the best, especially when markets get noisy. And so it is with the 10-year U.S. Treasury yield, the most important economic indicator in the world right now.
Trump coins and Trump stocks
Let's start by identifying some of that prevailing noise surrounding the Trump administration.
Within hours of its launch on January 18, the "Official Trump Meme" $TRUMP coin was already the 32nd largest cryptocurrency in the world at a market capitalization north of $5 billion.
By the time its sponsor took the oath of office $TRUMP's value had peaked above $50 billion. And First Lady Melania Trump's $MELANIA meme coin launched on January 19, quickly settling around a $5 billion market cap on Inauguration Day.
Of course, Trump Media & Technology Group (DJT) completed an initial public offering through a SPAC merger on March 25, 2024. DJT has been volatile, rising to $79.38 on March 26 and bottoming at $12.15 on September 23. But, after rallying to $40.03 on January 17, the stock was up 8.4% from the date of its IPO.
Trump Media & Technology Group, which owns and operates the Truth Social platform, reported third-quarter sales of $1.01 million. It lost $19.2 million during the three months ended September 30, narrower than its $26 million loss a year ago.
Then there's Tesla (TSLA), whose CEO Elon Musk is also the leader of the new Department of Government Efficiency (DOGE), perhaps the first federal agency to derive its name from a meme coin. During his pre-inauguration victory speech Trump expressly thanked Musk for his role in helping him win Pennsylvania and its electoral votes.
TSLA too has enjoyed major political tailwinds, rising nearly 70% from November 5 through January 17. But Tesla's future prospects are at least as much to do with progress on its Full Self-Driving (FSD) technology as they are dependent on Elon's relationship with the president.
And the stock price is already supported by a committed legion of fans who will buy and hold until the CEO finds his way to Mars.
The ultimate Trump price
Now, here's some signal.
On September 17, 2024, the day before the Federal Reserve cut interest rates for the first time since March 2020, the yield on the 10-year U.S. Treasury note was 3.642%.
By January 13, the 10-year yield had reached 4.896%, near the 5% level it hit in October 2023. It was down to 4.623% on January 17, the last trading day before Trump's second inauguration.
As J.P. Morgan Wealth Management Global Investment Strategist Samuel Zief explained in a January 17 Market Update, "Yields on 10-year U.S. Treasuries are over 100 basis points higher than their September lows – while the Federal Reserve has been lowering its target policy rate. That's unusual."
Zief adds that during seven previous Fed cutting cycles since the 1980s, "the yield on the 10-year Treasury was lower 100% of the time 100 days after the first rate cut."
The 10-year Treasury yield paused its recent ascent after Fed Gov. Christopher Waller said on CNBC that "it's reasonable to think rate cuts could possibly happen in the first half of the year" if incoming inflation data is in line with the current trend.
Callie Cox, chief market strategist at Ritholtz Wealth Management, identifies a gap in Waller's logic. "There isn't much to complain about in actual inflation data," Cox writes in a January 13 note, "and it isn't really inflation driving market moves — it's the anticipation of future inflation based on discussed monetary and government policy. There's a difference."
The Trump term premium
In other words, the tension in the U.S. Treasury market is about the Fed's focus on incoming inflation data while traders price in potential tariff, tax and other policy changes under President Trump.
The 10-year Treasury yield is primarily a product of inflation and growth expectations. "Yet," as Cox explains, "since the beginning of December, about 75% of the 10-year yield's rise has been attributed to the term premium." The "term premium" is a catch-all category that includes "unusual forces" such as concern about long-term structural issues related to government debt, technical momentum, and/or a simple lack of buyers. "In the bond market," Cox concludes, "it's a little more complicated than just slapping the 'inflation' label on it and moving on."
Upcoming battles in Washington, D.C., over the debt ceiling and Trump's proposed tax cuts as well as tariff and immigration policy will be reflected in the term premium.
It's unclear whether the historic move in the 10-year Treasury yield in apparent response to his return to the White House has already restrained President Trump. Day 1 executive orders focused on energy and border policy, omitting promised action on trade.
According to the Wall Street Journal, the president "plans to issue a memo directing federal agencies to evaluate trade policies and economic relationships with China and North American neighbors." As Trump adviser Stephen Moore told the WSJ, "It's an internal fight on how large the tariffs will be. The only question is whether they'll be universal and across-the-board, or targeted."
President Trump's nominee for Treasury secretary, Scott Bessent, testified during his Senate confirmation hearing that the administration would use tariffs to remedy unfair trade practices by sector and country, to raise revenue and as a negotiating tool for other policy concessions.
"I believe that in moderation, tariffs, for a time, strengthen America's negotiating leverage with other nations, and they can strengthen certain national security relevant industries, but overuse of tariffs can inflate costs and provoke trade retaliation," Bessent said.
Whether or not Bessent exerts a moderating influence in the Trump administration, there has been a shift in the balance of risks.
Indeed, the Fed has recognized that something "unusual" is afoot. The minutes of the November 17-18 Federal Open Market Committee meeting reveal as much: "All participants judged that uncertainty about the scope, timing, and economic effects of potential changes in policies affecting foreign trade and immigration was elevated."
And the 10-year U.S. Treasury note yield is the best way to understand how the market sees those risks right now.
